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Episode with guest: Corey Rosen
Founder and Senior Staff Member of NCEO
(This episode was recorded in October of 2022.)
Key Episode Take-Aways:
1. Capitalism is breaking, how can ESOPs help?(click to jump to this topic below) Capitalism exists, because there are laws that establish contract laws and other obligations between people. The problem of capitalism is that since the 1970s, the rate of capital investment, technological change and globalization have accelerated so quickly and so differently than they ever did before. The vast majority of economic growth is the result of capital ownership and intellectual ownership, rather than the result of people's labor. Those two things always tended to march in tandem until the 1970s, when capital investment went up, people became more productive, and wages went up. But Louis Kelso, who invented the ESOP back in the 1950s, said this relationship will break as the returns to capital start to soar because of the pace of capital change, and the returns to labor will stagnate. But the real costs even adjusted for inflation have gone up, because there are things that we didn't need back then, like cell phones and cable TV, were things that the cost of which has just way outpaced inflation, most notably, health care and education. So people are running farther behind, 50% of the private sector workforce today has zero retirement assets, zero. And the people who do have retirement assets, many of them are not secure. 50% of the population can't lay its hands on $1,000 in an emergency. On the other hand, three families control more wealth in the United States than 50% of the rest of the population. And 1% of the population owns 32% of the privately held productive assets. So how do we fix this? One traditional solution, on the left, has been tax the rich more and redistribute it to everybody else. On the other side, you have conservatives saying no fewer regulations, and lower taxes for everybody. Neither one of these approaches, much as they've been tried and argued over has gotten us very far in this problem. Kelso's brilliant solution was you provide a way that they become owners through work, not through their savings, not through the charity of the owners who they work for. But through a system where the future tax deductible profits of the company can be used to share ownership with employees, that is what all ESOP's and other forms of employee ownership are about. They're about the proposition, that if you share ownership with employees, the pie will get bigger. The future profits that those employees will generate, will pay for the ownership themselves, and often leave in excess, for further growth. And that's what the research has shown.
2. What is constraining the growth of employee ownership? (click to jump to this topic below) I should be clear that ESOP's are, while they're the most powerful way to share ownership, they're certainly the most tax effective way to share ownership. But for some companies ESOP's are not the right way to do it, there are other ways that you can share ownership. And one of the things that we're seeing where ESOP's are really growing quickly, is ESOP companies buying other companies. And there's a huge trend in that direction. So maybe an ESOP isn't workable for you, but you can sell to an ESOP company. So there are lots of options, here's an idea that works. It's the most tax advantaged way in the US to sell a business by far, and that's intentionally good for employees, good for communities, good for companies, and good for the owners. And by the way, companies grow faster with ESOP's than they would have, they didn't have it. And yet, it's not growing nearly as fast as we would like it to be growing. So why not? And there are a lot of reasons. Number one most important reason and it's a reason that could be easily addressed. If people don't know about it. Yeah, I'm sure they've heard the terms employee ownership. But they don't know how an ESOP works. And it's kind of complicated, it seems, they go to their accountant, and they say, Hey, you know, I'm thinking about time for business transition, or I'm sort of mid stage in my company. And I'd like to share ownership with employees. What can I do? Well, the accountant is not likely to tell them about ESOP's ting to understand the concepts at a different level by teaching.
3. What does the future look like for employee ownership? (click to jump to this topic below) If some of these state and federal initiatives pass, I'm cautiously optimistic, then I think we're going to see a lot more companies doing this because they'll know about it. So that's an important trend. Second trend, ESOP companies buying other companies. There are many more companies becoming effectively ESOP companies, because someone buys them that's an ESOP. Then if employee ownership succeeds, as we know it does, if you're 100%, ESOP you don't pay any taxes. And that's not a loophole, that's a law. So you're performing better, and you don't pay taxes, you're accumulating cash. What you can do with it, let's go buy another company, Integrity Marketing, an ESOP company in Dallas has bought about 100 companies in three years. So this is a really important trend that I am very optimistic about. The third trend is that it is just finally beginning to get a little more attention politically, there are more people who are signing on saying, you know, maybe I should actually talk about this. So I'm encouraged about that. Canada's likely to pass legislation that would be similar to us in the UK. So there are some tea leaves out there that are encouraging. And maybe the most encouraging thing is, everything else isn't working. We're getting down to the point where a people are saying, Hey, maybe we should try this one because it's pretty much all that's left.
Continue scrolling to read the full episode transcription.
Announcer 00:00
Welcome to the change the game podcast, where we share stories of open book management and highlight capitalism at its best. Here's your hosts, Rich Armstrong and Steve Baker.
Rich Armstrong 00:12
Welcome to the Change the Game Podcast where we are changing the game by doing business differently, and highlighting stories of capitalism at its best. I'm Steve Baker with the great game of business. And with me is Rich Armstrong. Hello, Rich.
Rich Armstrong 00:26
Hey, Steve, how are you today?
Rich Armstrong 00:28
I'm excellent. Hey, today, we have a really special guest. I'm going to get into the the bio here in a minute. But I think that everybody listening knows I'm a huge advocate of employee ownership. And as an employee ownership person, myself and employee owner, it has made a huge impact on our personal net worth. But it also is something else. It's a tremendous filter, it's given me hope for the world every day, because for the past 17 years, I've been able to meet some of the coolest people in the world, through the employee ownership community, and you've been in it a lot longer than me, what impact has employee ownership had on you Rich?
Rich Armstrong 01:07
Well, I think it's had a huge impact. I you know, I grew up in this I mean, this is really the only organization I've been in outside of, you know, small jobs before college, right? That I kind of grew up in this environment, for the last I guess, 32 years, as an employee owner, you know, when I look back at, you know, the 32 years, it's really kind of, I can kind of sum up my experience in kind of one word, and that's opportunity. And it's opportunity to build wealth, I think that's the biggest impact, right is to create wealth and understand that you're creating something beyond just growth of wages, right? Your growth of wealth, you know, Jack taught us all very early on the power of the multiple, right, and to understand that, and that's really the difference between kind of the haves and have nots is understanding that equation in a lot of ways. But also that comes with employee ownership that a lot of people don't recognize, maybe even me personally didn't recognize until deeper into my career is how much growth and opportunity there was of just building yourself as an individual, right, because employee owned companies are not all employee owned companies, but definitely SRC is valued employee, right. And they value their contributions, which gave you confidence in what impact you could make to the company, and it just built on itself. And it provided, you know, more confidence to go out there and do more than you ever really dreamed possible that you could do in terms of your career and an advancement in and just that part of the impact right is the growth of the individual and what they can do. So I I feel like it impacted in both ways, certainly the wealth side of it, but also just the growth of you of yourself, personally.
Rich Armstrong 02:54
I love it. And man, when you said 32 years at SRC, I was thinking this weekend, I was at a strategic planning meeting for that board, you know, the bank that I'm on and two of the members of the board. One had retired after 32 years, the other after 35 years at different organizations. Nothing, other than their own savings, their own 401k their own investments, nothing. And employee ownership there's a real opportunity there. It really punctuated it for me. So that's why I'm so excited about our special guest today. One of our longest lasting friendships, I would probably guess, it's Corey Rosen. Corey founded the NCEO, the National Center for Employee Ownership in 1981. I think in that year, I learned to tie my shoes at but I was graduating high school too, Corey so don't don't feel like I'm saying it's you know, too long. So Corey founded the NCEO. And over the years, he's written, edited and contributed to more than 50 books, uncountable articles and research papers on employee ownership. Folks, this is the guy. Corey is the world's leading expert on employee ownership and regularly appears in national media coverage. He got his PhD from Cornell, he actually taught political science and eventually worked on Capitol Hill where he actually helped initiate and draft the legislation, guys, he helped write the laws making ESOP's and employee ownership possible in the United States. This is amazing. Recently, he co authored his new book with open-book guru John Case and it's called Ownership, Reinventing Companies, Capitalism, and Who Owns What, Corey Welcome and thank you for being on the podcast.
Corey Rosen 04:43
Thank you. It's great to see both of you, Steve and Rich, and it's been a wonderful association with Jack and all the folks that The Great Game of Business it's been, what a joy to work with all of you. Whoever's gone through there has been just such a nice, decent person. And it's really, it's really been one of the great pleasures in my life and went to the first Great Game Conference and went to every one for many, many years after that, and it's been just amazing and inspiring to see the growth of the concept and to see the growth of SRC.
Rich Armstrong 05:25
Yeah, it's been, it's been great for us too.
Rich Armstrong 05:27
Thank you, Corey, thank you for that. And same to you. I mean, we've, we've definitely grown alongside with the NCEO and of everything that your that organization has done, and what you guys have done for the community, the employee ownership has certainly helped our organization, you know, fully leverage this opportunity for all of our people. So thank you for that. Thank you for that, hey, I wanted to just jump right into it in terms of kind of taking us back to the Wayback Machine right way back. You were in Washington. And thinking about, I assumed thinking about opportunities around employee ownership. Can you just take us back to that? And how did it how did you become involved in this world of employee ownership or this concept?
Corey Rosen 06:14
So I was on a Senate committee Staff, Senate Small Business Committee, and I'd read some testimony by a very famous sociologist, William Foote Whyte. I'd read his book, street corner society, I knew who he was, he wrote this book, Street Corner Society. And he also had this testimony in the Congressional Record, about this plant in Herkimer, New York that was becoming owned by its employees. That's an interesting idea. How does that work? And so I started learning more about it. And the more I learned, the more intrigued I was, because I was concerned, then, and certainly still am. That the way that work is organized, people aren't really treated that well, in most companies, they're they're assets. They're not people. And their ideas and their involvement in the company aren't really valued very much. So that was one problem. And the other problem was, we were already seeing that over time, people's wages were starting to stagnate. And wealth was really starting to concentrate and back in the 70s. Those numbers were far, far less concerning than they are today. But the trend has started. So how are we going to address this? Well, employee ownership seemed to be a way to do that. And Intriguingly, compared to most of the ideas that people have about how to change the world, to make it more fair, more equitable. This was one that you could actually get both Republicans and Democrats to support, you know, lots of books about how we can create a better more equitable society. And with a chapter, ours does too, about what are the next steps and the next steps are if I ruled the world, it would, we would do these things. And you read those last chapters and you say, Well, yeah, but you don't rule the world, you never are going to rule the world and these ideas, maybe they're really interesting, but they're totally politically impractical. And but here was an idea where it actually was politically practical, because the Republicans and the Democrats liked it. So I thought that's kind of a sweet spot. Ot works politically, it works economically. Why isn't there more of this? Well, we needed certain legislative changes, and we certainly needed people to know what it was. And we needed to know whether it really did work, because back in the 70s, it was still a very new idea. So that's what all intrigued me about it. And, and I got involved in some of the legislation that ESOP law had already existed by 1978. When I learned about this, it started in 74. But I was able to add some things, the most important was business owner came to me and said, You know, I could sell the John Deere, for John Deere stock and not pay any tax till I sell John Deere stock. But if I sell to an ESOP and I'm going to sell to an ESOP, then I have to pay capital gains tax right away. That doesn't seem right. Now changing the law is not going to help me because it's going to come well after I've done my deal, but it seems like that's not a good idea for other people. Hey, you're right. I said, and so I went to my boss and I said, What do you think? And one of my bosses, anyway, thought that was a great idea. I then had to go to the chair of the committee, who was a very liberal Democrat. And his response was, Well, that sounds like socialism to me. And I said, Well, Senator Nelson, we've already got Senator Goldwater's approval of this idea. And he said, Great, I'm on it. Let's proceed.
Corey Rosen 10:32
So we did, it took a while for that to pass. But that became what's now known as Section 1042, which allows owners to sell to an ESOP and defer capital gains tax. So that's where I was, in 1980. When I decided it's time to start the National Center, I had not the vagues clue how to do that, but I was determined and persistent. And today, the National Center for employee ownership has 19 employees and about 2700 members. And, by the way, if you're not one, it's forgivable, you can just go to our website and and you can become a member and then all will be well.
Steve Baker 11:16
I love it.
Rich Armstrong 11:17
It's the best value out there. Though kidding. Well, I love the stories. When I talked to you at the NCEO fall forum last week, you mentioned something that really has stuck with me for the last few days, I'd like you to talk about it that capitalism is breaking. Will you expound on that a little bit, please?
Corey Rosen 11:36
Sure. So capitalism is is a terrific invention. And let's be clear, it is an invention. It's not some natural order of things. Capitalism exists, because there are laws that establish contract laws and other obligations between people. If there weren't all those contract laws, capitalism would look like Russia, where, you know, the oligarchs rule everything or Somalia where there aren't any rules. So capitalism is an invention, and it's a really good one. The problem of capitalism is that since the 1970s, the rate of capital investment and technological change and globalization have accelerated so quickly and so differently than they ever did before. That the vast majority of economic growth is the result of capital ownership and intellectual ownership, rather than the result of people's labor. Now those two things always tended to march in tandem until the 1970s. When capital investment went up, people became more productive, and wages went up. But Louis Kelso, who invented the ESOP back in the 1950s, said this relationship will break as the returns to capital start to soar because of the pace of capital change, and the returns to labor will stagnate. Well, what happened? Kelso at that time, he said this, in our best selling book was labeled a fool, a charlatan. But from 1973, the year that ESOP's first appeared in any legislation, it became law in 74, from 1973 till 2022, so almost 50 years, real wages are somewhat lower today than they were in 1973. But the costs, the real costs even adjusted for inflation have gone up. Because there are things that we didn't need back then, like cell phones and cable TV, were things that the cost of which has just way outpaced inflation, most notably, health care and education. So people are running farther and farther behind. 50% of the private sector workforce today has zero retirement assets, zero. That's a crisis in the waiting. And the people who do have retirement assets, many of them are not secure. It'll be enough, 50% of the population can't lay its hands on $1,000 in an emergency. On the other hand, the Dow Jones average had three digits in 1973. And now it has five. Three families control more wealth in the United States, three families, then 90%, 50% of the rest of the population. And 1% of the population owns 32% of the privately held productive assets. So for some people, this has been great, they've gotten richer and richer and richer and richer, literally, with more money than many countries. But everybody else is struggling. So how do we fix this? Well, one traditional solution on the left has been tax the rich more and redistribute it to everybody else. Whatever you think of that solution, it has political limits. And we've seen those. It also has economic costs, of course, because there's some point at which those taxes become so high, that investment gets stymied. Now where that limit is, not my job. On the other side, thankfully, on the other side, you have conservatives saying no fewer regulations, and lower taxes for everybody. And that'll solve the problem. You can make arguments on either side, but neither one of these approaches, much as they've been tried and argued over has gotten us very far in this problem.
Corey Rosen 16:24
So if the problem is that people don't have ownership along with work, how do you solve the problem, Kelso's brilliant solution was, you provide a way that they become owners through work, not through their savings, not through the charity of the owners who they work for. But through a system where the future tax deductible profits of the company can be used to share ownership with employees, that is all ESOP's and other forms of employee ownership are about. They're about the proposition, that if you share ownership with employees, the pie will get bigger. The future profits that those employees will generate, will pay for the ownership themselves, and often leave in excess, for further growth. And that's what the research has shown. So here's this idea, it works. And it doesn't take any money from anyone to redistribute to anyone else.
Rich Armstrong 17:33
I love that. In fact, I love it so much, because you, you take out all the political anxiety that has been, I mean, look at any one of the issues out there right now that separate us. This can bring us together and it's not costing either side anything. That's a beautiful thing. It's a creative to the value of society, as well as the wealth in my account, which is, of course of the utmost importance to me. That is
Corey Rosen 18:03
This is the last employee ownership bill, which was an amendment to the National Defense Authorization Act of 2021. Was sponsored, and you have to sort of take a moment, take a deep breath and hear these words, sponsored by Elizabeth Warren and Tommy Tuberville. Now, I don't think that you will see their names together on any other piece of legislation.
Rich Armstrong 18:31
Except someone killed in bar fight. Yeah.
Corey Rosen 18:37
Exactly.
Rich Armstrong 18:38
Exactly. Well, Corey you mentioned that. Even you said, even the research shows that that this is a viable, and a very attractive option. But you still have you know, a lot of you know, challenge is just getting that awareness out there. And I know you have a new book as Steve mentioned earlier called Ownership, Reinventing Companies, Capitalism, and Who Owns that. I assume the core idea that you just talked about is the essence of this book. But it also brings out the research behind this was so can you share with us? What are some of those examples where, you know, this has been very successful and has made a true difference in the lives of the people within these companies.
Corey Rosen 19:28
I know you guys know Jasper engines, and they were at the Fall forum and told me over the life of their ESOP, and I'm not sure what it is maybe 20 years or so. They have distributed, and I think that 800 employees, they have distributed $375 million dollars to their employees. $375 million in a mid market sized company to their employees. Now imagine that weren't employee owned, now were owned by some private equity firm? Well, of course They probably wouldn't have been that successful. But let's somehow assume they were. That will be $375 million to like six people.
Rich Armstrong 20:09
Yes. Oh, yeah.
Corey Rosen 20:10
It's a big difference isn't it? You know I've always thought that the people who should be out there, pounding the hustings for employee ownership, are car dealers, and real estate brokers who are going to do a lot better because of employee ownership. But we know from the research, and we just did a we at the National Center for Employee Ownership, did a very comprehensive study where it wasn't a sample, we looked at every single S corporation ESOP. And most ESOP's are. And we compared that to every other S corporation that has a 401 K or other retirement plan. So we compare that to 300,000 companies, okay, not a sample. And what we found was that the average account balance in an ESOP is $132,000, the average account balance in a 401 K plan is half of that. Now, in addition, most of the ESOP companies have a 401k plan as well. So that total retirement assets are about three times as great, that relationship would continue until people left the company generally. So the $132,000 is that snapshot in time, and includes the employee who's been there two years and 20 years. But if somebody works for a company, we're working on a study on this now to get some numbers around this for say, 20 to 30 years, they're likely to end up with account balances in their ESOP around $500,000 or more. These are really impressive numbers, and provide people with a secure retirement. Now people said, oh, but ESOP's are too risky. Sure, you have lots of people succeeding, but there are bankruptcies. Well, there are, but they're rare. We did a study where we found that in even years that included the last recession, that the default rate on ESOP loan, so the money that was used to buy the stock, and the ESOP company was two per 1000 per year, two per 1000 per year. So ESOP companies are quite successful and rarely go bankrupt. It happens occasionally. But ESOP companies are this are equally likely to have a secondary retirement plan, as comparable companies are to have any retirement plan. We also know that ESOP companies don't generate all this extra wealth, by as economist thought for the first many years of ESOP's and argued, well, there's no free lunch. So if employees are getting this stock, they must be getting lower wages. That isn't true. It turns out, they actually get somewhat higher wages and better benefits and better health care. And the companies lay them off at 1/3 to 1/5 array of other employers. And they have much lower turnover. And that's a big issue in the great resignation period. We found in the food industry, which is really plagued by this, involuntary turnover 70% lower in these companies. So all the data point to this being quite successful. There are to be sure cases where it fails. There also, to be sure, cases that are spectacularly successful, where companies generate lots and lots of millionaires, who are just ordinary working, folks. So we know that this works.
Rich Armstrong 24:17
So with with with all of that, I mean, that's extremely exciting. And any, you know, anybody that says look at this is backed up with research, and, and it's also backed up with time, right? Because this has been around for a long time
Corey Rosen 24:30
Oh, yeah, 50 years, almost.
Rich Armstrong 24:33
What's the constraint? I'm just wondering, what's the constraint in the growth of this concept and these ideas?
Corey Rosen 24:42
So there are a number of constraints in this. And I should be clear that ESOP's are while while they're the most powerful way to share ownership, they're certainly the most tax effective way to share ownership. But for some companies ESOP's are not the right way to do it. You can give everybody equity grants, can be a worker cooperative. So, you know, if you're listening to this podcast and you say, well, an ESOP's not right for me, there are other ways that you can share ownership. And one of the things that we're seeing where ESOP's are really growing quickly, is ESOP companies buying other companies. And there's a huge trend in that direction. So maybe an ESOP isn't workable for you, but you can sell to an ESOP company, and you can contact us, we can give you ideas on how to do that. So there are lots of options. So here's an idea that works, has lots of tax advantages. It's the most tax advantaged way, in the US to sell a business by far, and that's intentionally good for employees, good for communities, good for companies, and good for the owners. And by the way, companies grow faster with ESOP's than they would have, they didn't have it. And yet, it's not growing nearly as fast as we would like it to be growing. So why not? And there are a lot of reasons. Number one most important reason and it's a reason that could be easily addressed. If people don't know about it. Yeah, I'm sure they've heard the terms employee ownership. But they don't know how an ESOP works. And it's kind of complicated, it seems, they go to their accountant, and they say, Hey, you know, I'm thinking about time for business transition, or I'm sort of mid stage in my company. And I'd like to share ownership with employees. What can I do? Well, the accountant is not likely to tell them about ESOP's
Steve Baker 26:45
Well that is true.
Corey Rosen 26:46
because they're complicated. And if something's complicated, the natural human tendency is to say, it's a bad idea. I don't know how to do it must be a bad idea. That's why I don't know how to do it, and shouldn't take the time to learn how to do it. Or worse, their accountant knows that, well, you know, if they if you do this ESOP thing, you might get some other advisors and not me, that's actually a mistake, because the other advisors will set up the transaction, they still need you as an accountant. And if they sell to somebody else, you're not going to be their accountant. But nonetheless, that happens, or you go to a business broker, and the broker makes money, they make a commission of two and a half, three and a half or more percent on the sale, called a success fee for finding a buyer or what if they come to you and say, I found a buyer, it's an ESOP? Well, how'd you find that? Well, I looked on the internet. And so, you know, that's not really what you're paying them hundreds of 1000s of dollars for in a success fee. So they're not going to do that. They're not going to encourage you to do an ESOP. So that's a tremendous problem. Or, you know, intuitively, it seems like employee ownership means employees buy shares. And I can't tell you how many conversations I've had with business owners, who say, I understand everything you've told me, and I've started the conversation saying the first thing you need to know, is it an ESOP? The employees don't buy the shares, the company buys them out of future tax deductible profits, we go through the whole shebang. And this is how it works, and blah, blah, blah, and come to the end. And they say, I understand everything you told me, Corey. When did the employees buy the stock? So that's a built in notion. And it's it's hard to overcome, and people think that it can't happen. Or some people think the employees are going to run the company, they're going to have to have, you know, sit on the board and hire the new CEO. And that's not true, either. So that's the first big problem. The second big problem is that if you do want to do say, 100% ESOP, not a partial ESOP, and then maybe do more later, banks aren't going to loan you 100% of the deal. Set, but you can finance the rest of the deal with a seller note. And for many owners, that's great. You get six to 10% interest rate over five to 10 years, and that's a nice return and you're very happy with that. But other owners want their money up front, understandably. And the only way to do that is to get secondary debt. That's really expensive.
Corey Rosen 29:39
There are efforts underway now to pass legislation that would provide support for that secondary debt. So it would it be cheaper. It's a long way from passing, but that's a problem that needs resolution. Similarly, there's legislation in Congress there's a very good chance of passing that would create funding for state centers on employee ownership to help solve the education gap. Then the third problem, and it's not an easy one that not as easy to solve as the first two is private equity has a lot of money. And so they're common in guiding checks. And for a lot of owners that sounds pretty good. Now, there aren't very many owners that I think have sold to private equity and look back and say, that was great. Things really worked out well selling to that private equity firm for my community and my company. And I've had people come to me, and say, we want to do an ESOP to buy it back from private equity, I was so despondent about what they did to my company. But it is a real competitor. And then on a political front, people don't talk about it. I think in large part precisely because it's not controversial. It doesn't sound like this really huge issue that you can battle your opponent with. Because your opponent is going to say, you're right. It does it just don't, it's really hard. I can tell you I've been we've been trying to publicize this book for the last month. And my the front of my head's getting really sore.
Steve Baker 31:33
You're banging your head on the wall, aren't you?
Corey Rosen 31:34
Yeah.
Rich Armstrong 31:37
So just a little bit follow up question to that is just you know. And thank you for that, by the way, because I think it's very important for for everybody to be aware of those constraints, because everyone who is going to be hit on anybody that's listening to this right now saying, Boy, that sounds like a good idea. But then they go and talk to their advisors. And they hit him with those those constraints. But to understand that there's there's ways of, of still making this work. I assume a lot of that's talked about in your book. Is there some other core ideas that come out of this book? And why why did you decide to write this book?
Corey Rosen 32:13
Yeah. And I do want to say, you know, with with ESOP's, yes, they are complicated. If, on our side, there's a side by side comparison of the complexity of selling to an ESOP, versus selling to another company, and I'll send you the link if you want, it's a lot more expensive, and it's a lot more complicated to sell your business to someone else than it is to sell to an ESOP. You just got to accept the fact that selling your business is complicated period. You've just got to choose which complexity you want to deal with, and which contingencies you want to put up with, there are all sorts of contingencies with selling to other companies. And again, I want to make it clear to your listeners, that there is no more tax advantaged way to sell a company and to an ESOP. So the complexity, you can hire people to navigate the complexity. If this is something that appeals to you, there are lots of very flexible ways to do this. So don't dismiss it out of hand, because it seems complicated. That's the least compelling reason. There are reasons not to do it. But that's not one. So in the book, we also talk about some other ideas for sharing ownership widely. The one that intrigued me the most is the idea of platform cooperatives. So if maybe some people are familiar with stocksy. So if you go onto the internet, and you want to get an image, say to put into your PowerPoint slide, and it's copyrighted, there are various sites that you go to their purchase that so the person who took the picture gets paid for that copyrighted image. And one of the biggest is stocksy, which is a cooperative of all the artists who do this. Imagine if instead of Lyft, or Uber, being started by private equity and venture capital investors, that there was a cooperative of drivers who came together and said, Let's create or pay for some software, so that we can create a ride app. And we'll own that software. That's what a platform Co-Op is. And there is, in fact, something like that in New York, which has about 2500 drivers belonging to it now. So as we see more of these sorts of technologies that hire contract people, imagine if those contract people own that technology instead of by someone else. So that is a really interesting idea. We do talk in the book about the sorts of initiatives that can make this move forward. And maybe what's part of what makes the book seem like, well, you're not talking about really big ideas here, you can play on a ship as a big idea, the things that we need to move it forward, that could make a huge difference, or small ideas, which is what makes them less of a political issue, but also, in many ways makes them appealing. The most important thing that can happen is information. And the most effective way for this to happen is through state organizations. So California, we just passed unanimously, the California Employee Ownership Act. I mean, it will help accomplish that purpose. If this bill in Congress passes, that will help fund a bunch more of these. So Colorado created a program under its governors, a big advocate that does outreach that does loan support, and that has funding for feasibility studies. I imagine if every state did what Colorado is doing. That impetus for those pieces of legislation was not some big lobbying effort wasn't some huge PAC donation, there was one person calling up one member of the state legislator, legislature or the governor, saying, Hey, this is a good idea. What do you think? And their response was, that is a good idea. What can we do, and making it happen, employ ownership can sell itself, but you got to get in front of people. So if any of you are out there thinking, I'd really like to move this idea forward. The best thing that you can do is to go talk to your state legislator about employee ownership legislation. And we can help we have a whole coalition ready in place to help you to figure to your state legislator to figure out the roadmap on this. So you know, all you got to do is get them to step one.
Rich Armstrong 37:24
Yeah, if you had the relationship, you had the gun.
Corey Rosen 37:28
Yeah. You know, a lot of a lot of your listeners may know someone in their state legislature. But even if you don't your constituent they're gonna listen to you. It's a lot easier to approach them than people think they like getting these kinds of contacts. And I like having a bill saying, Hey, I did this.
Rich Armstrong 37:49
True.
Rich Armstrong 37:51
That's great. Well, Corey, I'm curious about what trends you're seeing out there. What is the future of employee ownership?
Corey Rosen 38:00
Well, if some of these state and federal initiatives pass, and I'm cautiously optimistic, I'm more optimistic about it than I've ever been. Then I think we're going to see a lot more companies doing this because they'll know about it. So. So that's an important trend. Second trend is what I mentioned, ESOP companies buying other companies, there are many more companies becoming effectively ESOP companies, because someone buys them. That's an ESOP. Then, because they started an ESOP themselves. And if employee ownership succeeds, as we know it does, and the tax benefits, if you're 100%, ESOP you don't pay any taxes. And that's not a loophole, that's a law. So you're performing better, and you don't pay taxes, you're accumulating cash, what you can do with it, let's go buy another company, you know, Integrity Marketing, it's an ESOP company in Dallas is bought about 100 companies in three years. So this is a really important trend that I am very optimistic about. And we're going to be trying to help facilitate that. In fact, the third trend is it is just finally beginning to get a little more attention politically, there are more people who are signing on saying, you know, maybe I should actually talk about this. So I'm encouraged about that. Canada's likely to pass legislation that would be similar to us in the UK. So there are some tea leaves out there that are encouraging. And maybe the most encouraging thing is, everything else isn't working. We're getting down to the point where a people are saying, Hey, maybe we should try this one because it's pretty much all that's left.
Rich Armstrong 40:02
It reminds me, I don't know who said it, but it was like, Yeah, capitalism. It's a horrible system. But it's better than all the other ones.
Corey Rosen 40:11
Winston Churchill said that, I'm paraphrasing a little bit, that the problem with capitalism, is it not everyone shares their shares in that success. The problem with socialism is that everyone shares equally and it's failure. Yeah.
Rich Armstrong 40:29
Miserable, miserable. Well, I'll take this one any day. Corey, your mission at NCEO is to help employee ownership thrive. I think you've covered kind of the the future of employee ownership, what's the future of NCEO as an organization?
Corey Rosen 40:48
Well, we became a fully virtual organization post pandemic, and, and we've grown so we, we thought when a pandemic hit that, because we're gonna maybe cancel our conference and lose lots of money we didn't, we ended up moving to a virtual platform in five weeks, which was an amazing thing to do. And we ended up growing instead of getting smaller. And we've gone from 13 to 19 employees since 2020. So where we've expanded, our research team has now three full time researchers. And we're really focusing now on, on thinking on organizing our resources as solutions. So whatever problem that you've got, how do I do an ESOP? How do I communicate it to employees? How do I get employees involved, that we have a package of resources that are specifically for that problem. So we're excited about that. We're going to create some some new products, we've created a new captive insurance program, for instance, that I think is really promising. So we're just trying to listen to our members and find ways to help us grow we one thing I'm really proud of in this organization is that we have been a self funding organization from the start. So we are not grant funded. We're not foundation funding or well aceept donations. But we're not, we're not out there seeking them. And we have been able to fund this growth entirely through the work that we do. And it's been great. And we've like employee ownership companies that have very little turnover. We have extraordinarily gifted staff, people and what a pleasure it is to work with everybody.
Rich Armstrong 43:00
Yeah, that's that's fantastic. Fantastic. So tell me, Corey, what's one question we should be asking you right now that we're missing?
Corey Rosen 43:11
I think that's, that's covered it pretty well.
Rich Armstrong 43:15
We've covered it.
Rich Armstrong 43:17
That's the first isn't it Steve.
Rich Armstrong 43:19
That is the first actually Corey. We never, we never just like nailed it. That's good. Well, Corey, we, you know, we try to capture the essence of this conversation as we do our podcast and to some show notes, kind of a summary, that sort of thing. I don't know if I'm going to do this justice. So I'm going to read it back to you and see what you we think what I missed, and fill in any holes for me, if you don't mind. I, first of all, I want to, again, thank you for all of your work for over 40 years making employee ownership something that I would not have been able to participate in, had you not, instead of, you know, smoking that joint in the 70s You went to work, you helped draft legislation and you made it happen. I mean, it's there's a lot of things right here. You pointed out that over time, people's wages have have been stagnating and wealth has been concentrating, you said that, since the 70s, the rate of change has been so quick that most economic growth being driven by capital ownership, and that's sort of thing, rather than by people's work, real wages have have basically a lower impact now than they did in the 70s. And the cost of living is much higher. People are running farther and farther behind. Some of the stats that you mentioned 50% of the population has zero retirement assets. Half the population can't lay their hands on 1000 bucks in an emergency. Three families control more wealth in the US than half the population. And you've got two sides very conflicting. on their approach to how do we address this on the left, you've got tax the rich redistribute the wealth on the right, fewer regulations lower taxes, neither one gets us near a real solution. You mentioned Louis Kelso the guy that brought the ESOP idea. And I think that's worth people Googling and looking up Louis as, as you said, the brilliant solution. People grow their wealth through their work, not their wages or outside charity, the pie gets bigger. And this solution doesn't take away from anyone it's extra. The average ESOP participant, like me or Rich is paid more retained longer, treated better and received better benefits than the average employee in the US. The average ESOP balance is $132,000. The average 401k balance for an ESOP participant at arms are in the US is $60,000. And you're saying that the average retirement assets of each sub participants are something like three times the average? Was I, pretty close on those stats?
Corey Rosen 46:04
Yeah. The 401k 67,000.
Steve Baker 46:07
67,000. Okay, I'll get that. So the bottom line is that, you know, there's a lot of reasons to, you know, say, Hey, this is a good thing. You address some of the issues that people have, is it risky? You said the default rate is extraordinarily low. Plus the complexity that people perceive around ESOP's? Yes, they are complicated, but you can hire experts to navigate the complexity, don't let that get in your way. ESOP's are the most tax advantaged way to share employee ownership? That there are other ways to share ownership to employee ownership is good for owners, employees, communities and our country. And we need a solution. There's no doubt about it. You pointed out some interesting things. You said ESOP companies are actually buying companies as they grow. And an example used was Integrity, Marketing, and Texas that has bought 100 companies so far. Did I get that right?
Corey Rosen 47:03
More or less, 100, Yeah.
Steve Baker 47:05
that's amazing. And you mentioned other versions of this platform cooperatives like stocksy, or other compelling ways to share employee ownership. And that the biggest issues that we have, are really around, you know, why doesn't everybody do this? Which is really a question I think Jack stack wakes up every day, you know, he gets asked every single day, why doesn't everybody do open-book if it's so darn great. Well, Corey, why don't more people do this? It's because awareness, education, and you said that the state centers that are being formed to help educate people, and especially business owners, have been started with very grassroots efforts like one call to one legislator, you have all the resources at NCEO at people's fingertips to make this happen. All we need is a call. So the appeal is call your congressman, get the conversation started. That was a lot of notes there. Did that encapsulate it?
Corey Rosen 48:04
Yeah, very well. Perfect.
Rich Armstrong 48:06
So what I'd like to do is Corey, how can listeners find your new book because they need to read this new book and learn more about employee ownership.
Corey Rosen 48:16
So it's easy to find the book on any bookseller website, Amazon, Barnes and Noble, your bookstore can order it for you, you can also go to our site at nceo.org, we'll sell it to you for a little less than any of those other folks, although Amazon also has it in audio and Kindle versions, if you like that. And if you want to, as of course I would encourage you to do to buy multiple copies of this book to give out to your legislators, colleagues and friends, then contact me because we can give you a bulk discount. So it's Ownership, Reinventing Companies, Capitalism, and Who Owns What. So it's easy to find it's anywhere you buy books, you can buy that book.
Rich Armstrong 49:06
I love it. And I'll make sure that that's in the show notes so people can just click the link and get right to it. Corey, thank you so much for being here. You are the Rockstar of employee ownership, and we love having you as a friend.
Corey Rosen 49:20
Well, I'm honored and as I said, My association with everybody at The Great Game has been one of the great joys and one of the great learning experiences. The NCEO would not be the organization it is without The Great Game, because we have learned so much from everybody there. So we really appreciate it, it's been a fabulous partnership.
Steve Baker 49:44
Well, thank you, Corey. All right, guys. Another great podcast, another great guest, another great subject. Let's keep that conversation going. Send us your questions, your stories, your best practices, your ideas, your challenges, and your victories that's capitalism at its best thanks for joining us and we'll see you next time.
Announcer 50:06
The Change the Game Podcast is produced by the great game of business to learn more visit greatgame.com
